Commvault Systems Inc (CVLT) 2016 Q3 法說會逐字稿

Good day, ladies and gentlemen.

Welcome to the Commvault third-quarter 2015 earnings conference call.

(Operator Instructions)

As a reminder, this conference call may be recorded.

I would now like to turn the conference over to Michael Picariello, Director of Investor Relations.

You may begin.

Good morning.

Thanks for dialing in today for our third quarter of 2016 earnings call.

With me on the call are Bob Hammer, Chairman, President and Chief Executive Officer; Al Bunte, Chief Operating Officer; and Brian Carolan, Chief Financial Officer.

Before we begin, I would like to remind everyone that statements made during this call, including in the question-and-answer session at the end of the call, may include forward-looking statements, including statements regarding financial projections and future performance.

All of these statements that relate to our beliefs, plans, expectations or intentions regarding the future are made pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995, and are based on our current expectations.

Actual results may differ materially, due to a number of risks and uncertainties, such as competitive factors; difficulties and delays inherent in the development, manufacturing, marketing, and sales of software products and related services; and general economic conditions.

For a discussion of these and other risks and uncertainties affecting our business, please see the risk factors contained in our annual report in Form 10-K and in our most recent quarterly report in Form 10-Q, in other SEC filings, and in the cautionary statement contained in our press release and on our website.

The Company undertakes no responsibility to update the information in this conference call, under any circumstance.

In addition, the development and timing of any product release, as well as any of its features or functionality, remain at our sole discretion.

Our earnings press release was issued over the wire services earlier today, and it has also been furnished to the SEC as an 8-K filing.

The press release is also available on our Investor Relations website.

On this conference call, we will provide non-GAAP financial results.

The reconciliation between the non-GAAP and GAAP measures can be found on Table 4 accompanying the press release, and posted on our website.

This conference call is also being recorded for replay, and is being webcast.

An archive of today's webcast will be available on our website following the call.

I will now turn the call over to our CEO and President, Bob Hammer.

Thanks, Mike.

Good morning, everyone, and thanks for joining our fiscal third-quarter FY16 earnings call.

I'm happy to report that we had substantial sequential improvements in our financial results.

We have over-achieved our expectations for the quarter in both revenue and earnings.

Let me briefly summarize our Q3 financial results.

Software revenues were up 24% sequentially; total revenues were up 11% sequentially; EBIT margin was 13.5%, or up 580 points sequentially; EPS was $0.28 per share versus $0.15 per share in Q2.

The headlines for the quarter were: we had outstanding sales execution, particularly in the Americas and EMEA.

We experienced very significant increases in the amount and number of large enterprise deals, and had higher than normal transaction close rates.

Sales funnel inflow continued to grow significantly during the quarter, driven primarily by improvement in large enterprise deals in the Americas.

As a result, we now have a much bigger funnel, which puts us in a better position heading into Q4 2016 and into FY17.

We enter Q4 with good visibility to our current forecasts.

The 11th version of our data platform was released on October 20 via a controlled release, including Commvault software services and additions to the solutions portfolio.

It has been very well received by the market, in particular for our platform and the expanded cloud functionality.

We expanded our healthcare business.

We announced a strategic investment and partnership with Laitek, a privately held data migration and storage service company focused on the healthcare industry.

Specifically, the two companies will leverage Laitek's data migration expertise in the healthcare vertical to retire legacy image archiving and communication systems.

This will enable hospitals to move their data, which is in many different proprietary formats and data silos, into one data silo with one format.

Data will be stored in Commvault's cloud-based data management platform and can be used for a single patient records and diagnostics.

The Laitek technology will be fully integrated with our platform.

We expect that our healthcare vertical will be a high-growth business in FY17.

We believe that success in executing our transformation has enabled us to build a foundation for us to achieve solid revenue and earnings growth in FY17.

In broad summary, the business acceleration this quarter was due to continued successful implementation of our transformation initiatives; our industry-leading technology and services, particularly those that enable customers to manage their transition to the cloud; benefits from increased uncertainty in the competitive landscape; and an outstanding sales execution.

I will now provide you an update on our business transformation.

Please note that this will be the last earnings call where I will address this business transformation, as we are now shifting our focus to maximizing revenue and earnings growth.

Our transformation has been driven by significant structural and competitive changes in the market, which required us to make fundamental changes to our business and our organizational structure.

We initiated the Commvault Next transformation a couple of years ago, in anticipation of many of those changes.

The objective of Commvault Next was to return Commvault to solid revenue and earnings growth in an environment driven by the secular disruptions caused primarily by the shift to the cloud and SaaS environments.

As a reminder, to successfully execute this transformation, we made the following fundamental changes: we changed our organization model to put accountability in the product areas with a business unit structure; we brought in new leadership and made structural and operational changes, particularly in the Americas theater; we introduced a number of stand-alone solutions targeted at changing customer buying habits and needs; we updated our pricing and packaging to make Commvault easier to sell and easier to buy; and we instituted a services-led approach, while delivering proactive support.

We enhanced our go-to-market capabilities with improved demand generation, branding and messaging.

And we expanded our strategic partnerships with Microsoft, Cisco, and AWS, along with newer converged infrastructure vendors like Pure, Nutanix, and the OpenStack consortium, as well as large global systems integrators.

Our Commvault Next transformation has enabled us to build a new strategic foundation and has positioned us well to meet the needs of customers in this rapidly changing environment.

We have consistently communicated in the past that we believe the transformation would result in improved financial performance in the second half of FY16.

I am pleased to say that we accomplished that objective and, as a result, are successfully executing the key elements of our transformation.

We now have increased business momentum, with accelerating revenue and earnings growth.

Business momentum is confirmed by the significant growth in our sales funnel.

This has enabled us to reignite our Q3 2016 top-line growth, and position us to have a strong finish to FY16, and establish the foundation for an improved FY17.

We also believe the structural changes taking place in the market are acting as strong catalysts for our business growth.

I will provide more details on this as the call progresses.

I will now address our FY16 and FY17 financial outlook.

The combination of an improving near-term outlook and the establishment of the strategic foundation for long-term growth has put us on a firmer position to drive both near- and longer-term revenue and earnings growth.

We continue to see funnels improving, and our confidence has increased that we will see licensed revenue momentum continue to build into FY17.

More specifically, we should see sequential license revenue improvement in Q4 2016, based on an increase of enterprise deals in the funnel.

Our funnels indicate that good year-on-year comparisons on licensed revenue growth are possible in the March 2016 quarter.

We expect positive growth -- these positive growth trends to continue through FY17.

We want to remind everyone that, even though licensed revenue growth is accelerating, that we expect maintenance revenue to remain flat through FY17.

This is due to both the drag in maintenance revenue impacted by FY15 and the first half of FY16 license revenue results, and the ongoing realignment of our maintenance pricing.

As a result of flat maintenance revenue, earnings growth will be driven by software license revenue growth in FY17.

Brian Carolan will provide more detail on maintenance during his earnings call comments.

Given the slow FY16 first half, we believe that FY16 total revenue will be slightly down, in comparison to FY15 levels.

For Q4 2016, we believe the current Street consensus for total revenues is reasonable.

Beyond that, our strong Q4 2016 outlook, increasing funnel build and visibility sets us up for what we expect to be a positive start to FY17.

Let me spend a minute on our investment spending, going forward.

Commvault has made significant investments throughout our transformation to put us in a unique position to holistically solve a broad range of the critical new problems that customers are facing as they migrate to the cloud, manage data in the private, hybrid and public clouds, including open, converged and big data infrastructures.

As a result, an increasing number of customers are engaging with us as a key strategic partner.

This is positively impacting the number and size of large enterprise deals that we have closed and that are in our funnel.

The move to the cloud has clearly become a major factor in our increased business momentum.

A window of opportunity has opened up for Commvault as a result of the combination of the structural shifts in the market, which are acting as catalysts for growth, the successful implementation of our transformation plan, improving sales funnels, a strong product pipeline, and disruption of key competitors.

As a result, we will take advantage of this window to implement a prudently more aggressive investment approach to accelerate revenue and earnings growth in FY17 and FY18.

We will be increasing selective investments in the short and long term to optimize growth.

This will impact the rate of operating margin expansion in the short term and into FY17.

With that said, we will be managing the amount of operating expense increases to ensure, going forward, we achieve both our revenue growth objectives and, concurrently, achieve good near-term EBIT growth and substantial operating margin expansion over the long term.

Brian will discuss more details on software and services revenue growth rates, as well as operating margins, later on in the call.

While our strategic fundamentals are strong, and our ability to execute is improving, I would like to add the following words of caution, as well as highlight some of the challenges we are facing.

We are winning larger and larger enterprise deals.

However, our ability to grow is more dependent on not just big deals, but a steady flow of $500,000 and $1 million plus deals, which have quarterly revenue and earnings risk due to their complexity and timing.

Even with improved funnels, large deal closure rates may remain lumpy.

Achieving our FY17 license revenue growth objectives will be dependent, in a large part, on continued successful market adoption of solutions based on our new Commvault data platform, and associated software and services.

We're in an opportunity-rich situation in the market, and we will be prudently increasing spending to increase revenue and earnings growth for FY17 to take full advantage of the expanding window of opportunity.

As a consequence, there would be a negative impact to our earnings if we miss our revenue targets.

Services are forecast to be flat in FY17 to both our declining software revenue growth in past quarters and the ongoing realignment of our maintenance pricing to be competitive with the market.

We remain concerned about current macro conditions, especially in Asia and parts of EMEA.

We recently hired a new Vice President of Asia Pacific and Japan, Owen Taraniuk.

And Owen joins Commvault bringing 25 years' experience in the technology solutions industry.

Owen is in the process of a significant strengthening of his business, which will take a few quarters to positively impact financial results.

Our VP of EMEA recently resigned to pursue another opportunity.

Ron Miller, our Worldwide Vice President of Sales, has personally taken over the region while we are in the process of recruiting and hiring a new VP of Sales for EMEA.

Ron will be hands-on to ensure we continue to execute well in EMEA.

Despite these challenges, it is important to note that there are some very large enterprise deals in the funnel planned for the quarter and next quarter, which, if closed, could positively impact financial results.

In summary, we have started to reignite growth and are establishing a foundation where the business forecasting model has better predictability.

We've made a lot of progress on the key elements of our transformation, which has resulted in strong Q3 results and a much improved near-term outlook.

We're in a stronger position to drive both near-term -- near- and longer-term revenue and earnings growth, but still have a lot of work to do, to successfully implement a number of key strategic initiatives tied to our next generation platform that are necessary for us to achieve these objectives.

I will discuss this further later on in the call.

I will now turn the call over to Brian.

Brian?

Thank you, Bob, and good morning, everyone.

I will now cover some key financial highlights for the third quarter of FY16.

The strengthening of the US dollar compared to certain foreign currencies had a significant impact on the year-over-year results for the quarter.

Foreign currency movements had a minimal impact, on a sequential constant-currency basis.

I will state our as-reported non-GAAP results first, and also state the year-over-year results on a constant-currency basis.

Third-quarter total revenues were $155.7 million, representing an increase of 11% sequentially, and an increase of 2% over the prior-year period.

Total revenues were up 6%, year over year, on a constant-currency basis.

We reported software revenue of $71.4 million, which was up 24% sequentially, and flat year over year.

Software revenue was up 4% year over year, on a constant-currency basis.

Revenue from enterprise deals, which we define as deals over $100,000 in software revenue in a given quarter, represented 54% of total software revenue.

The number of enterprise deals increased 33% sequentially.

Our average enterprise deal size was approximately $278,000 during the current quarter, which was up 3% from approximately $269,000 in Q2 2016.

Americas, EMEA, and APAC represented 60%, 29%, and 11% of software revenue, respectively, for the quarter.

On a sequential growth basis, Americas, EMEA, and APAC software revenue increased 18%, 37%, and 26% respectively.

The revenue mix for the quarter was split 46% software and 54% services.

Please remember, services revenue is a combination of both maintenance and support revenue, and professional services revenue.

Services revenue for Q3 was $84.3 million, an increase of 1% sequentially and 4% year over year.

Services revenue was up 9%, year over year, on a constant-currency basis.

Our maintenance and support renewal rates remained strong.

We added approximately 400 new customers in the quarter.

Our historical customer count now totals over 22,000 customers.

For the quarter, revenue transacted through Arrow was approximately 39% of total revenue, increasing 9% year over year and 11% sequentially.

I would now like to spend a few minutes on our pricing models.

Our software licenses typically provide for a perpetual right to use our software and are typically sold on a per-terabyte capacity basis, on a per-copy basis, or as a solution set.

During the quarter ended December 31, approximately 73% of software license revenue was sold on a per-terabyte capacity basis.

This is down from 77% in Q2 2016.

We anticipate that capacity-based licenses will continue to account for the majority of our software license revenue for the foreseeable future.

Over time, we anticipate a gradual shift to more subscription-based and consumption-based pricing models.

Sales of our stand-alone solution sets increased substantially and had more than a 2 times attach rate of sales of other software solutions.

These solution sets are generally sold on a per-unit basis and can be individually deployed or combined as part of a comprehensive data protection and information management solution.

Now moving on to gross margins, operating expenses, and EBIT margin.

Gross margins were 87.4% for the quarter.

Total operating expenses were $112.8 million for the quarter, up approximately 6% year over year and up 5% sequentially.

During Q3, we continued to focus on improving the productivity of existing resources, while prudently investing in the business.

We ended the quarter with 2,372 employees.

We saw continued improvement in sales rep retention.

Sales and marketing expenses as a percentage of total revenues were 54% in the current quarter, which was down from 56% in the second quarter.

The sequential increase in sales and marketing expenses was primarily the result of an increase in fuel compensation, tied to significantly improved commissionable bookings.

Operating margins were 13.5% for the quarter, resulting in operating income, or EBIT, of approximately $21 million.

EBIT margins were approximately 14% on a year-over-year constant-currency basis.

Net income for the quarter was $13.2 million and EPS was $0.28, based on a diluted weighted-average share count of approximately 46.6 million shares.

EPS was approximately $0.31 on a year-over-year constant-currency basis.

Interest expense on the revolving credit facility was nominal in the quarter.

While there have been no borrowings on our credit facility, we do incur interest expense related to the commitment fee.

We anticipate that we will have no net interest income in FY16 and FY17.

I would now like to spend a few minutes discussing our anticipated revenue and EBIT margin outlook.

We believe that significant funnel growth and current sales capacity will have a positive impact on our Q4 2016 financial performance.

Overall, we believe that current Q4 2016 Street consensus for total revenue is reasonable.

From a revenue mix perspective, we expect that sequential quarterly services revenue will be flat for Q4.

This is a result of both the trailing impact of declining software revenue in FY15 and the first half of FY16, as well as the ongoing realignment of our maintenance pricing to be competitive with the market.

Our continued maintenance pricing realignment will phase in through FY17.

This strategy aligns with our V11 software release, which will result in streamlined maintenance pricing that we believe will accelerate new customer acquisitions and make it easier to do business with Commvault.

Our existing customers will also benefit from these changes and will ultimately have a lower cost of ownership.

For FY17, we expect solid double-digit software revenue growth, with flat services revenue.

We believe current FY17 consensus estimates for total revenue is reasonable.

Before I address operating margin expectations and our rate of investments, I would like to highlight one additional key spending increase in Q4.

Historically, we see a large sequential increase in employer-paid FICA expense in Q4, because many of our employees in the US reach the FICA limit well before the end of the calendar year.

This year, we expect our FICA expense in Q4 to be approximately $3 million higher than Q3.

We expect FY16 annual operating margins to be approximately 10%.

As Bob noted, now that we are shifting our focus to maximizing our revenue and earnings growth objectives, we're going to increase our rate of investments, including the pace of hiring, in order to take advantage of the current market opportunity we have in front of us.

We will accelerate these investments in Q4 2016 and FY17 in order to take advantage of our unique position in the industry to pick up additional market share.

Although our objective is to increase EBIT on an absolute dollar basis in FY17, we currently expect flat operating margins for the full fiscal year.

We anticipate operating margins to improve sequentially as the year progresses, especially as the top-line growth rate increases.

We will provide more details on the outlook for FY17 on our next earnings call.

Our revenue and margin outlook assumes current FX exchange rates.

Our objective remains to improve our longer-term operating margins from current rates.

Our return to higher earnings growth rates requires a balancing act of controlling expenses, while at the same time making the necessary investments to achieve our key revenue growth objectives.

Let me now comment on tax rates and share count.

We will continue to use a non-GAAP tax rate of 37% for FY16 and FY17, which approximates our anticipated longer-term tax rate.

Cash taxes paid in FY16 are projected to be less compared to FY15, based on current estimates of taxable income.

Over the long term, we expect our cash tax rate to align with our non-GAAP tax rate.

For FY16, we anticipate that our annual diluted weighted-average share count will be approximately 46.5 million to 47 million shares.

For FY17, we anticipate that our annual diluted weighted-average share count will be approximately 47.5 million to 48.5 million shares.

Now moving on to our balance sheet and cash flows.

As of December 31, our cash and short-term investments balance was approximately $401.1 million.

Approximately one-third of this balance is outside the US.

Free cash flow, which we define as cash flow from operations, less capital expenditures not associated with our new headquarters, was $13.9 million, compared to $19 million in the prior-year period.

The year-over-year decline was a result of lower EBIT and higher accounts receivable, due to timing of collections.

As Bob noted, during Q3, we made a strategic investment in Laitek, for approximately $5 million.

We expect healthcare to be a high-growth vertical for us in FY17 and beyond.

Since our last earnings call on October 27, we have repurchased approximately $14.8 million, or approximately 477,000 shares of our common stock, at an average cost of $31.13 per share.

So far, during FY16, we have made cumulative repurchases of approximately $49.5 million, or 1.44 million shares of our common stock, at an average cost of $34.28 per share.

We currently have $135.2 million available under our stock repurchase program.

We will remain opportunistic with stock repurchases.

As of December 31, 2015, our deferred revenue balance was approximately $230.4 million, which is an increase of $8 million, or 4%, over the prior-year period, and up 3% sequentially.

On a constant-currency basis, deferred revenue was up 8% year over year.

For Q4 2016, we expect that total deferred revenue will increase at a similar sequential growth rate as Q3 2016.

Consistent with my earlier comments regarding maintenance pricing realignment and related services revenue growth rates, we expect deferred services revenues to be flat to slightly down sequentially in the first half of FY17 and begin to sequentially improve in the second half.

At the end of FY17, we expect deferred services revenue to be up slightly from FY16.

Please remember, the vast majority of our deferred revenue is maintenance and support revenue, not software revenue.

As of December 31, 2015, our deferred software revenue balance represented less than 1% of total deferred revenue.

Lastly, for the quarter, our days sales outstanding, or DSO, was 60 days, which is up from 59 days in Q2 FY16, and down from 65 days in the prior-year quarter.

That concludes the financial highlights.

I will now turn the call back over to Bob.

Bob?

Thank you, Brian.

I will now provide some more detail on the key factors which are driving our improved business momentum, financial performance and outlook.

The major issues, as I mentioned earlier, are the successful implementation of our transformation plan; structural changes in the industry, which are acting as catalysts for growth; key competitors who are being distracted; and outstanding large deal execution by the Commvault sales force.

Rather than discuss all of these issues, I'm going to spend a few minutes focusing on why the major structural changes facing the industry are acting as catalysts for our growth.

And how our next generation data platform both addresses these issues, and how it is being enhanced to help us address new opportunities.

The move to the cloud acts as a catalyst for growth for Commvault.

The most important structural and disruptive changes that are helping Commvault accelerate growth are the rapid adoption of public and private clouds, along with the adoption of new software defined storage infrastructures that are being deployed for the cloud and for big data infrastructures.

As customers migrate to the cloud, adopt new IT infrastructures and deploy newly architected applications, they are looking for a strategic partner who has technology and services that can help them make the transition from traditional to new IT infrastructures, and holistically migrate and manage data across both traditional and new infrastructures.

As a result of our leading technology and services, Commvault is becoming that strategic partner for an increasing number of large enterprises.

Commvault's data platform is the only major software platform in the industry whose underlying scale-out architecture is compatible with the architectures found in highly virtualized environments, public clouds, private clouds like OpenStack, and big data infrastructures.

It is completely compatible with big data Hadoop infrastructures.

As such, our platform can be installed virtually in the cloud's managed data and cloud-based applications and infrastructures.

It can also be used to manage data in large Hadoop and Greenplum infrastructures.

The Commvault data platform will be fully integrated with all the major hypervisors, which enable secure data portability across all cloud infrastructures.

Our platform has a unique capability to index all the data, no matter where it resides, at an object level.

A key problem customers have is they cannot effectively move their data through the cloud, unless they understand what data they have and who has secure access to it.

Our platform enables our customers to understand what data they have so they can classify it, decide what to keep, what to delete, and what to move to the cloud.

It enables customers to have all their data secure and natively available.

Data can be uniquely managed where it lives without moving it, whether it resides on a machine, a social network, a mobile device, or in the cloud.

We can provide our customers with one view of their data whether it is on premise, in the public cloud, in a mobile device, or in a SaaS application, as well as fully orchestrate and automate key processes.

These data and management -- data understandings are critical to governance, compliance, and reporting applications.

In summary, our platform aligns very well with the structural changes taking place in the market.

This is being confirmed by analysts, solid early-customer adoption, and positive response from partners who are strongly supportive of the Commvault data platform and our vision.

Most importantly, as I mentioned earlier, validation is coming from our customers in the form of a large increase in enterprise deals that are closed or in the funnel.

These deals are coming from new and existing customers who are choosing Commvault for data management, cloud data migration, and federated cloud management capabilities.

I will now provide an update on our new software release, and in particular, the cloud data platform, and a perspective on our broad product innovation pipeline.

The first subject on our pipeline is Commvault's cloud value proposition, which is being strengthened with software-defined storage capabilities, or SDS.

Commvault's leading data platform is now being enhanced and extended with embedded leading software-defined storage capabilities.

Commvault's SDS will be delivered in the near future.

Unlike many of the newer SDS vendors, Commvault SDS will provide a common index and awareness across traditional, cloud, SDS, which we mean by Web Scale or OpenStack, hyper-converged and big data environments for enterprise-wide data management, security, compliance, federated search and analytics.

Our platform can handle massive data and operational scale.

Commvault has a very robust innovative pipeline.

Our first wave was introduced in October, and we plan additional announcements early next month.

In addition to SDS, we will be coming to market in the near future with a number of new solutions, including new appliances, gateways, managed services, and new solutions for active archiving, cloud SaaS from Commvault, and solutions to protect and manage major SaaS applications from some of the market's leading players.

We're also using the new functionality of the platform to develop highly differentiated vertical solutions, such as within healthcare.

The second customized healthcare solution will be released this quarter, at the HIMSS healthcare show in early March.

In summary, the Commvault data platform provides industry-leading capabilities for customers to much more easily transition from legacy to new IT infrastructures, hyper-converged private and public clouds.

We are enabling customers to simplify and automate the migration of business-critical workloads to and from the cloud, and the management of data in the cloud.

Additionally, in the near future, we will be providing leading software-defined storage that can be deployed on premise or in the cloud.

Please note, the development and timing of any product release, as well as any of its features or functionality, remain at our sole discretion.

In closing, we have successfully implemented key elements of our transformation and will now focus on maximizing the growth of revenue and earnings.

Business momentum is improving, and we have positioned Commvault for much better financial results in the second half of FY16.

We have built a foundation for Commvault to generate significantly improved revenue and earnings growth in FY17.

We have made significant progress in transforming the Company for a cloud-first world, managing data on premise, migration to the cloud, and managing data and infrastructure in the cloud.

There is still lots of work to be done.

We now need to achieve our Q4 FY16 financial objectives and make sure we get off to a strong start to FY17.

We need to validate that we can sustain momentum in the business, with revenues generated by our next generation platform and solutions portfolio.

The Executive Team is confident and highly focused on achieving both of those objectives.

I will now turn the call back to Michael.

Michael?

Thanks, Bob.

Operator, can we please open the line for questions?

(Operator Instructions)

Joel Fishbein, BTIG.

I have one for Bob and one for Brian, real quick.

First, Bob, on the healthcare vertical, you made the investment in this Company, obviously a huge opportunity.

You're talking about a product coming out in March.

Can you give us a little bit of color on where you see the opportunity specifically, if you have any deals in healthcare right now?

This could be a new end market for you.

And then for Brian, just real quick, can you give us an update on exactly where you are on the maintenance transformation or transition?

I know you have been going through it, but I think that you are largely through a big part of it.

If you could just give us some color on that, that would be helpful, too.

First of all, Joel, healthcare is either our second or third largest vertical today on the data management side.

So we are well positioned globally in that industry.

What the investment in Laitek does is provide a significant value add on the clinical side of healthcare.

So simply put, hospitals have data stored in many proprietary silos, whether it is x-rays, MRIs, blood tests, these are all in proprietary silos, and in proprietary data formats.

And they typically sit on highly expensive primary storage.

So it is a big expense for the hospitals.

It is difficult for them to get at the data, because it is in so many disparate infrastructures.

So what we have done with Laitek is we have, with their technology and ours, we have connectors now to all the major legacy and new healthcare systems.

We have built our own di-com capability.

So we can grab the data from these systems, put them in a common format, store it in our content store, and now you've got -- and we can cleanse it, so you've got a single formats.

You are reducing the footprint of that data significantly, reducing the cost for the hospitals, and making it really easy for them now, and much quicker, for them to access data for both single patient record and for diagnostics.

Laitek also brings a lot of services capability.

Yes, good point, Al.

When you deploy systems like this, you need highly skilled services expertise, and Laitek has a leading reputation in the industry for their services capability, as well.

Good point, Al.

Great, thanks.

This is Brian.

Thanks for your question on the maintenance pricing realignment.

We've been talking about this for several quarters now, and trying to proactively phase this in, and I would say that it is going well.

We still have very high renewal rates from customers, and high customer satisfaction.

So we are doing this more to align with the competitive realities of the market, and also make it easier to do business with CommVault.

At the enterprise level, which is our larger customer base, in terms of dollars, that accounts for about 75% of the maintenance renewal dollars, and I would say most of the pricing changes are behind us in that segment.

What is remaining in front of us is the remaining 25% that is at the mid to lower end of the market.

We're dealing with a much higher volume of customers at that segment, so we understand the importance to be more programmatic and partner-friendly and channel-friendly with it.

We will phase in these changes throughout FY17, but we are confident that this is the right thing to do for the business.

It's going to ultimately result in streamlined maintenance pricing, hopefully accelerate new customer acquisition, become a catalyst for license revenue growth.

And, also, our existing customers will benefit from these changes over time.

Jason Ader, William Blair.

Couple questions.

First, Bob, can you talk to any whale-sized deals that skewed the numbers in the quarter?

Any super-lumpy deals?

And then on the Q4 guidance, can you reconcile the comments around sequential growth in software with the fact that the consensus for Q4 seems about flat sequentially?

So if services if flat, as you guided, and there's sequential growth in software, then the actual guidance should be a little higher, it seems, than what the Street consensus has.

I want to understand that a little bit better.

In Q4, we had a lot of deals over $500,000, and many, many deals over $1 million.

So it was spread over a very large number of these big enterprise deals.

I think in the aggregate, we said enterprise sales was up, I think, 33%, quarter on quarter?

Yes, which was Q3, over Q3, sequentially.

So that was extremely gratifying, and it was global.

The same can be said for Q4.

That in the funnel, there are a very large number of $500,000 and $1 million deals globally, that will drive the number.

I qualified that in my text by saying there are some, you would call them super-whale-sized deals that are in the funnel that could skew the number, on top of that.

And I think our comment on our prospects for Q4, I think we're using the term reasonable.

And we believe those numbers, they are sequentially up, but reasonable.

Okay, and then one quick follow up, a little bit away from the numbers.

Bob, can you -- you talked, in your comments, your scripted comments, about the cloud.

Can you explain, very simply, how the cloud is good for you?

Because I think the conventional wisdom out there is that the cloud is bad for a lot of traditional infrastructure software.

It is not just good, it is very good for us.

So there are a number of things.

If a customer is -- wants to -- whether they're going to a public cloud or a private cloud, and they want to migrate data from a legacy system, the first thing they need to do is, what data do I have?

So unless you can go out and figure that out and index that and -- securely index it at an object level and figure, what do I have, what do I want to keep?

What do I want to delete, and what do I want to move?

And get a taxonomy on that, it is very difficult.

And we are the best at that globally, so then we can migrate the data.

Secondly, once you get it in the cloud -- and if you think of a -- whether it is open stack, or you think of Azure or AWS, those are different silos, also.

AWS might have hundreds of different data centers.

So we can move the data in those clouds, orchestrate those infrastructures, right?

We can spin up compute network storage in the cloud, tied to a given application, and manage and index all that data.

We can implement our platform in those clouds, and manage the data in the cloud securely.

So now, you have -- customers have a complete picture of what the heck is going on with their data, no matter where it resides.

And we can federate across the different AWS silos, or Azure silos, or between Azure and AWS, or Azure and OpenStack, et cetera.

So we can make the management of data extremely efficient.

Now, you can use it for things like -- take a simple compliance application.

I have got a set a policy on certain data globally.

It can be sitting in 30 different silos.

How do you do that, unless you had one view of your data, that you can put an attribute on it, and set a policy on it, to make sure that you are in compliance with a privacy right, or whatever.

And we can do that holistically, and match the scale across an enterprise.

Or I want to do a federated search for analytics; one data that I have stored on premise, on mobile or in the cloud.

Or maybe I want to go out and grab data that is sitting in a cloud, or sitting in a social network, and I do not want to move it.

I just want to index it, understand it, and bring that into a repository for business analytics application, we can do that.

And we are unique in our ability, across all of these different dimensions of the cloud, versus our competitors.

So it has got extremely high value to customers.

And I can tell you, these $1 million deals, and the high seven-figure and eight-figure deals coming in, are tied to having those capabilities for these customers.

All may want to add some additional information on that.

Then -- by the way, then you add software defined storage, where you can -- in the cloud, you can write to our software defined layer, adds additional value.

I think Bob hit it pretty well, Jason.

I think -- and again, it is probably a lengthy discussion, on the technology side, of why we make that happen.

But I think he was hitting it.

If you think about, traditionally, our indexing layer in there, as we have implemented a more services-oriented architecture, we had taken apart the other elements.

Be it operational, and as Bob alluded to, storage, as services elements.

That tends to match cloud environments.

And again, his key point is, nobody is sitting out there with one cloud, or moving all their data to a cloud.

It is spread across -- and most of the applications out there, particularly around data management, starts with, where is it?

And did I put that out in Azure, or did I put that over in Amazon?

Or where is it?

And again, you know people are building infrastructures that those lines of demarcation should be very transparent.

Srini Nandury, Summit Securities.

Can you please provide some color about your relationships with Nutanix and Pure?

And also, can you talk about the industry trends in the backup space?

And you mentioned, in passing, some of the workloads are actually getting backed up to the cloud.

Can you provide us some color, what kind of workloads are getting backed up to the cloud?

And are people backing up to multiple clouds?

For example, in both Azure, as well as to AWS, for instance, so that they don't get locked into these clouds?

Any color would be appreciated.

Al is going to take this.

I'm sure there's two questions in there somewhere.

But first of all, on new partners out there, being Nutanix and Pure, I think, was part of your question.

Again, I think it ties the whole thesis here, of people are coming in and looking to put in new infrastructures.

Call it hyper-converged, call it software defined, whatever the term being.

And people are very interested in products coming out of places like Nutanix and Pure.

Those firms are helping us get ourselves in front of the end-user, particularly looking to make those moves in the infrastructure; particularly looking for data management tool sets.

So that has been quite helpful there, as well as some Microsoft and AWS partnerships out there.

As to workloads, I think a very interesting thing is, first of all, it tends to be almost everything but the big, traditional, heavy, transaction-oriented big database kind of environments that still remain, in our opinion, fairly resident in on-prem traditional data center kind of environments.

But as you probably know, that is a very small percentage of the data anymore, and a very small percentage of the data growth.

We tend to, as Bob alluded to, get people interested in not only dealing with new infrastructures, and not only dealing with all the different infrastructures that you have out there holistically, but the new apps.

And the new apps that are developed generally will not run in older traditional kind of environments, yet they still need management, and they still need protection.

So for instance, SQL, we see a lot of SQL mini-apps, personalized apps, setting in a lot of these environments, that tend to be a great candidate for cloud infrastructure.

So again, having a solution that spans across those environments, new apps, old apps, production, non-production, cloud, traditional, is unique to our value props and our solution sets.

Aaron Rakers, Stifel.

I want to go back to the large deal dynamic.

Can you talk a little bit more about the type of growth, or the level of growth, you are seeing in the $500,000 and the $1 million type deal sizes?

And is that a piece of your business that you foresee, over the next couple of quarters, something that we more openly discuss, or even quantify those trends around, going forward?

Qualitatively, it is very substantial, Aaron.

We have not, at this point, planned to break it out, but we might.

Because we just made a very substantial turn, and the pipeline on those deals is quite deep, going forward, as well.

So it is -- as I have said and as Brian has said in his commentary, it will be a significant factor in our growth.

It is an area where we have very, very significant strength.

And it is primarily, not entirely, but primarily, tied to these -- moved to these new cloud-based or big data infrastructures.

That is where it is coming from.

And whether the customer is deploying it today or planning to, it is a key element of every deal we are involved in right now.

And decisions are being made on those -- and is not just the technology capabilities we have.

It is our services, our automated services, to manage in these diverse environments, which is quite unique out there.

As well as our professional services, so we can go in as a strategic advisor, and help customers make these moves.

Because we've made a lot of investment in our strategic consulting services, to help our customers move to the next generation environments, as well.

Okay.

The second question, for Brian, I want to go into your expectations, with regard to operating margin leverage.

I know you had commented that, looking out into FY17, you expect operating income margin to be roughly flat, year over year.

I am just curious of how you are thinking about the balance between return of revenue growth, relative to what it has been, and I would assume is still, a longer-term targeted mid 20% operating margin for the Company?

Thanks, Aaron.

Yes, it is a delicate balance, to be honest with you.

We have to be prudently investing in the right areas of high-revenue growth, and ultimately have the highest impact on our earnings growth, as well.

We believe we're in an opportunity-rich situation.

We have some wind at our backs, we have good momentum.

Now is the time to prudently invest, and not pull back.

And obviously, our maintenance pricing realignment, as one example, that is going to act as a near-term headwind to operating margin expansion, but it is certainly an investment in something that is right for the Business.

Especially for FY18 and beyond, when those growth rates begin to normalize, and we are able to get more operating margin leverage out of that revenue stream.

So FY17 is -- our expectation now is that it would be flat operating margins.

We will continue to update that thinking, and give you more color on the next call.

But in terms of modeling, at this point in time, we think that is reasonable.

I can add more color.

You are going to see -- that's a good, solid earnings growth, with relatively flat operating margins, for at least four quarters, probably five quarters.

After that, when you start -- when the maintenance growth catches up, and you have got accelerating revenue growth, and we have got enough elements to do that, then you are going to see a massive expansion in operating margins.

But think five, six quarters out, when those two things come together, Aaron, that is what we're taking advantage of.

We see the opportunity to really maximize this, given our market opportunity right now, with some selected investments.

And when those two curves come together, then you can see some pretty significant improvement, not only in EBIT growth, but in operating margin expansion.

And it is going to come from sales and marketing.

At one point, we had it down to 43%; now it is 54%.

So you have got -- pick a number.

We've got 11 points sitting there.

That is reasonable, but we don't want to sacrifice that, given the growth opportunity we have in front of us.

So -- and we are somewhat constrained by maintenance for four or five quarters.

Greg McDowell, JMP Securities.

Bob, one quick question for you.

I wanted to drill a little bit into your commentary on the increase in certainty in the competitive landscape.

And specifically, I was wondering if you could maybe comment on your opinion of the restructuring of the Veritas transaction?

And whether that says something specifically about maybe underlying trends in this backup and recovery market, and the broader market?

Or did it feel very company specific?

Or is it related to the debt markets?

Just wondering, any commentary you could provide there?

And if there are other key competitors you feel are really suffering, if you could just highlight those?

It is across the board.

I'm not going to get into a specific commentary on Veritas, or what's going on with EMC, or some of the other larger competitors of ours: HP or IBM.

But clearly, we have gotten significantly out in front of every one of those competitors, from a technical standpoint, services and support.

And that -- and we're going to create additional distance between us and these competitors, as we go forward.

Because one, we are in much firmer foundation right now.

We can -- we are well down the path of innovation road map, and every one of the competitors I just mentioned has what I would call significant architectural underlying issues that they have got to address, which is going to take time and money.

In regard to the newer competitors of the market, those coming in on the software defined storage side and areas like that, we can beat or match them, just on the SDS side.

But we have got all the data management ability to understand data at the object level, across not just a software-defined storage infrastructure, but any infrastructure.

So we have got significant advantages versus our traditional competitors, who have issues they have to deal with on their own, both technology and business issues, which everybody is well aware of.

And we are getting additional technology.

We have developed technology advantages relative to many of the new competitors who are coming into the market.

So across the board, whether it is platform or standalone solutions, or ability to now take this selectively into vertical markets, take the underlying advantages over technology and services, and start building very unique vertical solutions that have high impact.

High impact, to us, is -- think of $100 million impacts.

Then, you have got the foundation of a Company that has some long-term staying power.

But the point I mentioned on the call is, we have got to execute that now.

We have made the turn tied to the transformation.

Now building on that turn, and taking that to the next level for sustained long-term growth, is right in front of us, and we're going to take advantage of it, and we are going to make that happen.

So probably as good a summary as I can give you.

I think Al wanted to make a comment.

Yes, just one quick one, Bob, because that was good.

But I would also say the -- our services and support equation here, from a competitive standpoint, in my opinion, I am slightly biased, but remain superior to most of our competition out there.

The support reputation we have in the market, as well as, Bob alluded to it up front, our services capability now in enterprise environment, going into these new infrastructures, which are complex, when you look at a big environment.

Our consultive capabilities are extremely important to our relationship with the customer, and our ability to succeed in this segment.

That is a five-year investment we have made there, (multiple speakers), to make sure we built a foundation (multiple speakers).

And it is a major differentiator, is the point.

Yes, right.

(multiple speakers) And what I was going to say is, that that was a major expensive investment.

So if you have -- and you're not going to get a return on that right away.

So if you are in the market, and you are constrained on your spending, it is not something that is easy for some of these other competitors to implement right now.

Andrew Nowinski, Piper Jaffray.

Congratulations on the quarter.

Just a quick question and a follow-up.

I know you launched Simpana 11 in the middle of the quarter, and you noted that you're receiving positive response from customers so far.

But I think the channel is just getting up to speed on it.

So I'm wondering if you could give us any color on what drove the strong software license growth this quarter?

Whether it was from your standalone solutions?

Or more from just a better-than-expected demand from Version 10?

It was, we had very high growth from our standalone.

We had high growth from 10.

This is in Q3.

But a lot of customers were making decisions, because we released 11.

So even if a customer was on 10, to the point to we're making it on the cloud, those cloud decisions were an element in the decision-making.

And clearly, a lot of the big deals that are in the funnel for the March quarter are on 11, and these new areas of functionality that we just described.

So it was across the board.

Brent Bracelin, Pacific Crest Securities.

I wanted to drill down into the last question a little bit more.

Bob, obviously, the rebound software up 24%.

It is the highest in five years.

I appreciate that you are seeing more $500,000, $1 million deals.

Good to hear standalone is doing better.

My question really comes down to, what is driving it?

Is your win rate improving?

Do you think there was a benefit, maybe, of a budget flush in the enterprise?

Is it, these customers are really buying into Version 11 release?

Help us understand the change.

Again, biggest sequential growth in software in five years.

What are the factors that are driving the large deal momentum you are seeing?

And the change, right, that we really haven't seen in the last couple of years?

It is all of the above.

As we talked about, as we went into this transformation, one, we had to disaggregate the product line: pricing, packaging, standalone.

We had to do that.

We had to make some really significant, as Al talked about, underlying changes to the platform, to align that with the cloud.

So we made the -- you have got to start there.

We've made significant changes in our services and support capabilities.

Now you put, on top of that, we had to get the Americas positioned for growth.

So changes in structure, leadership, significant increases in enterprise reps, territory realignment.

So massive changes in the capability of the Americas.

At the same time, we invested in expanding alliances, the Microsoft's, and the AWS, and the Pure's, and the Nutanix and the Cisco's.

We made a major investment in digital, in our outbound marketing capability to bring leads into the funnel.

It is all of the above.

It was -- going into it, it was investment across the Company.

In our structures, in our focus, establishing our BU, so you've got get a lot more focus on exactly what products you're -- what are the product requirements in each of these different market segments, to get a lot more comprehensive in defining those requirements.

And making sure we're meeting customers' needs, and getting out in front of the competition.

It wasn't one thing.

We knew -- and I have said this now for probably well over a year -- all of these things had to come together, and they did.

Now we saw it, by the way, over the summer.

We indicated to you last quarter that we started to see it in the funnel.

We didn't see it in the results, but we saw it in the funnel.

And what we communicated was, now, if we can translate that growth in the funnel into revenue, we would see some remarkable results.

What happened was, we did that, and the funnel kept growing, at a pace that we -- higher than our expectations.

And then our sales execution was outstanding.

And it all came together, and we had -- we've described the perfect storm that hit us two years ago, that was against us.

Now, we have got the opposite going on.

Now, we have the perfect storm that is helping us, and we want to build on that momentum.

So it is many different things that we did, that came together to -- that ended up in a good, solid, strong result that has legs to it.

Abhey Lamba, Mizuho Securities.

Congratulations.

Clearly, a much positive tone than what we've seen in the past few quarters.

My question is a little follow-up to the previous one, in terms of sustainability of the close rates, the uptick in close rates that you have seen.

What are the factors that give you confidence that you can get to solid double-digit growth in FY17?

And have these both growth and funnel and close rates continue to move in the right direction for you?

The key is that we have continued funnel growth, so we have some visibility to Q4.

And quite frankly, we have visibility to Q1, to achieve our numbers.

And this is better visibility than we have had in two years now.

So the acceleration of that funnel, and quite frankly, the visibility on top of that funnel, plus all of the things that we talked about that are in place, and we are going to add to it, increases our confidence.

That being said, we still have got a lot to do, Abhey.

But we can see through Q4, and through June, reasonably well right now.

And now, we just continue to build on it, and build on the things that we already have in place.

And plus, we mentioned you'll see product announcements coming out this quarter.

There will be a series of announcements coming out next quarter.

There will be announcements coming out in the September quarter.

So we have got a broad -- both services and product pipeline, and expanding distribution.

And when I talk about distribution, it's not just our resellers.

It is our resellers, and our strategic partnerships, which are expanding, and our systems integration capability.

And for the first time in our history, we have leverage coming out of -- from our marketing efforts, that is helping us build pipeline.

It is just a Company that has gone through an expensive, difficult, painful transformation, and now we're coming out the other end of that.

And it's a lot -- we have got a lot of work to do.

But it is a lot better with the wind at our back, and lots of opportunity in front of us, than what we went through over the last 24 months.

That's very helpful, Bob.

Plus, we also think the market shifts that are helping us are sustainable, if you believe cloud is here to stay.

We've -- one of the guys asked earlier, we are just -- even in our install base, we're seeing a remarkable acceptance of using cloud infrastructure.

And when I say cloud, I'm not talking just public.

I am talking these hybrid, private, on-prem, converged, with the addition of public environments out there.

It is just a tremendous amount of deployment and acceptance going on there.

So again, as Bob said, we are well positioned there.

So if you think that is going to continue, that is part of our confidence.

We're not going to get on into it on this call.

Next call, we'll talk about a little bit more about it.

But it is not traditional backup.

It is a traditional understanding of the data, but done with different technologies.

Yes, good point.

Ittai Kidron, Oppenheimer.

Congratulations on a good quarter.

I wanted to dig into your flat operating margin comment into next year.

Can you give us a little bit more color as to, how do you think about headcount additions?

And what does it mean, from a headcount addition?

In the last couple of years you have had a little bit of a hard time, from a hiring standpoint.

Are you now moving into some sort of a -- again, an aggressive hiring mode?

And how do you think you are set up for that?

Or internally, from a process standpoint?

The amount of hiring we will be doing is nothing like we did in the first part of FY16, but it is more aggressive.

Because what we did is, we put the structures, organizational structures and headcount, in place before we had revenue.

And it impacted, obviously -- so our licensed revenue was going South, and our expenses were going North, for three quarters.

And what we did is, we could see the turn, and we slowed down our op expense growth pretty significantly, until we could see it validated.

And then we plan to turn it back on.

So in fact, our headcount last quarter was negative, as we pulled back, and just made sure all these pieces were in place.

And we validated where we were, both tactically and strategically.

And now, what we are doing -- and this is at the margin now.

We will be incrementally increasing it, as we go forward, to take advantage of these opportunities.

But on a relative basis, it will not be as much as we did a year ago, and we could do better.

I think what we are saying here is that flat operating margin is the right assumption to use now, as we go through this.

If we over-achieve, you could see some expansion.

But you're not going to see the dramatic expansion until your maintenance growth catches up with your license revenue growth, and that is five or six quarters out.

Once that happens, you have got a whole different situation here.

But the odds are -- of us achieving both of those, in that timeframe, are really high.

And in the meantime, we're still going to get good EBIT growth, tied to the growth in license revenue.

John DiFucci, Jefferies.

Bob, I want to go back a couple of questions, because I want to make sure I understand what is driving the improved momentum here.

You said it is the result of pretty much everything.

And specifically, you talked about new product launch, and also the old product sales.

But typically, when we look at enterprise software, a new product comes out, and there is usually -- customers might try it in their labs for a while.

They -- especially if it's a major new product, they may dip their toe in, at first.

And maybe it builds pipeline, but it usually doesn't convert to sales right away.

But -- so I guess -- two questions.

One, for the December quarter, was this quarter really driven by better execution around Version 10?

And all those other things that you have talked about through this Q&A and in the call?

Or was there really some significant uptick in Version 11, in actual purchases?

Not pipeline, but actual purchases.

And then it sounds like your confidence in especially the large deals, going forward, there's certainly a component of Version 11 in there.

But can you talk about, specifically for the December quarter, and then again for the future, what that pipeline entails?

Whether it is Version 10 and better execution, or whether it is more Version 11?

And maybe it's both this quarter, but that would be a little different than I'm used to seeing.

Yes, so on the numbers, it was our standalone solutions, which carried with it about 2X additional license with it.

So you had growth there, including some in the enterprise.

The license revenue growth in the big deals in the enterprise was primarily on Version 10 sales, that were, what I'm going to call, in many cases, highly influenced by our Version 11 vision.

Because every EBC, every discussion I've had with these customers, even though they are buying 10, we were getting into these cloud discussions and capabilities.

Even if they were deploying 10 now, and were going to move to 11, it had a-- not in every case, because some of those deals were in the pipeline a little bit longer.

But in almost every case, the 11 capabilities had a significant impact on the decision of the customer to choose CommVault.

And Al can add some color to that.

I think one last one, John, and a couple of you have brought this angle up.

But I think the important thing for you all to understand is, we are a modern cloud software company.

We do not wait two years to release major functionality.

We're doing it almost every quarter.

So -- yes, so a lot of what Bob said is very accurate, but -- and most all of the sales were V10.

But we put new things like live sync, and some of the live native copy elements into the last recent releases of Version 10.

Some of our scale-out capabilities, et cetera were all in our October release of V10, SP 11 or 12, something like that.

But again, the point is, there's constant innovation coming out from our end, and people are buying the vision, but they're also buying the current solution sets, which add a lot of value.

And when you get into the March quarter, obviously, from actual bookings, you are going to see a pretty substantial uptick in 11 bookings.

And I'm talking about the platform sale bookings.

Yes.

And lastly, we did just turn -- and John had a good point, since many people do wait a bit, particularly larger firms.

But we did just release yesterday, I think it is, upgrades now are available for -- and remember, we are at SB2 now, on V11.

Yes, so last quarter was a controlled release of V11.

Yes.

So it was very selective.

But it was available, if people --

It was available.

So it was GA, but it was under -- anybody who wanted it could get it, under a controlled release, which we put a lot more oversight on those installations as we come out.

And it's -- so far, it has done really well.

Was that helpful for you, John?

Michael Turits, Raymond James.

Bob and Al, thanks very much.

I want to come back to the cloud question.

You talked a lot about what your technical and architectural advantages are, during this long-term transition to the cloud.

But right now, in terms of revenues, has could been a net positive or a net negative?

And maybe we could talk about specific examples.

And maybe as one idea, Office 365 transitions, where maybe you were formally backing up exchange?

Is that a net positive or negative, when that goes to the cloud?

And then maybe what about new workloads, which are incremental and being created in the cloud?

I am just telling you, of our revenue base, and that uptick in orders has a -- just what we talked about, Michael.

The O-365, you could say it's a net negative, but it is completely overshadowed by these other demands of customers, and workloads that they're dealing with, either migrating from an old application to a new one.

You want to take 365?

We have got seven-figure deals that we closed last quarter, tied to customers that were migrating from exchange to O-365.

So last quarter, if you said, is it a positive net last quarter?

I'd say it was a significant net positive.

I don't know, Al, you want to --

Yes, and the only other data point, I'd tell you, is, as Bob said, we have had several success stories around just protection and archive in O-365.

Forget the migration in full, and all of that.

So that was one.

Two of the things that we have seen internally, Michael, was over one year, the consumption on our -- with our customers in cloud environments tripled.

And that usually, that workload was backup, which surprised us a little bit.

But you see all of the other ones of DR, and DevTest, and moving a lot of -- FileShare, and a lot of those capabilities [moving them out].

So again it's -- as Bob said several times, it's all of the above.

But we are convinced that this newer modern infrastructure architecture out there being driven by things like, anything from big data Hadoop and Greenplum to converged infrastructure, all plays to our favor.

And is exactly the trend in demand that we are seeing, especially by A, bigger customers, and B, even the service providers.

If you are going to do compliance, and you do not know what you have got and where it is, you cannot put an audited compliance policy in place globally.

Just start there.

That's is a big issue.

So if my data -- and after sitting up there, and I cannot federate that across my Azure or AWS infrastructure, I have got an issue.

If I want to do federated analytics, how do I do that, without having that capability?

In the big Hadoop environments, which is spinning up for us pretty strongly right now, people stop putting data in these big Hadoop business structures, and now it starts to overwhelm them, and they've got no way to archive it, move it, manage it for analytics.

That is turning out to be a really big market.

A lot of technology there, in terms of, how do you do that?

Whether it is Greenplum, or -- and we're starting to win deals, just on that alone.

So -- and then swing around, and start to deal with, okay, how do I -- you are not going to see backups anymore, or very little, going forward, in some of these workloads is, how do I move data really quickly to the cloud, and keep it active and tied to an application?

People call it active archiving, or whatever.

That is spinning up.

It's -- if you are on the right side of the power curve, this is a really interesting time for companies like ours.

Eric Martinuzzi, Lake Street Capital.

The repurchase -- just a clarification.

The stock that you bought, the 477,000, was that since December 31?

Or was that since -- (multiple speakers) the press release said since September 30, but your prepared remarks, I thought you said since October 27.

I guess another way to ask the question.

Did you buy anything in the 90-days quarter ended December 31?

Or has it all been since then?

It has been since December 31, Eric.

Okay.

And then a follow-up question.

The pricing model shift -- maybe I am not understanding how the pricing model shift ripples across the deferred revenue.

But I would have thought there would have been a higher percentage in the deferred revenue of software, given your pricing model shift, where you talked about, in Q2 2016, it was 77% perpetual.

And then it went down to 73% in Q3 2016.

Can you connect those two for me?

Yes, it's -- our sales are still largely perpetual.

There is some degree of recurring revenue and subscription-based revenue, but it is still largely a perpetual sale.

So our decrease in capacity based license sales was offset by an increase in solution set sales, which we saw a nice sequential uptick in that stream of revenue this past quarter.

And again, those are largely perpetual sales, as well, so they would not necessarily show up in deferred revenue.

That is all the time we have for questions today.

Ladies and gentlemen, thank you for participating in today's conference.

This concludes today's program.

You may all disconnect.

Have a great day, everyone.